Smith & Nephew plc (NYSE:SNN) has agreed to sell its gynecology unit to Medtronic plc (NYSE:MDT) for $350M. The deal is expected to reduce SNN's 2016 non-GAAP EPS by less that $0.01 and be neutral in 2017.

Smith & Nephew (SNN+11.2%) jumps on a 5x surge in volume in response to anonymous reports that Stryker (SYK+1.7%) is preparing a bid. Sources close to the matter say Stryker is willing to pay as much as a 30% premium to SNN's current price.

Stryker (NYSE:SYK) is considering making a bid for medical device manufacturer Smith & Nephew (NYSE:SNN) as a standstill period that prevents it from making an offer nears its end, according to reports out earlier.

SYK is examining structuring the deal as a tax inversion, allowing it to move its legal address to the lower-tax U.K., but SYK is said to see strong strategic reasons to pursue a combination aside from tax advantages, and an inversion would not be essential to make the deal work.

J.P. Morgan analysts think an acquisition could be at least 7%-8% accretive to SYK's 2016 EPS, rising to 11% in 2017 and 13% in 2018, assuming a 30%-35% premium relative to the unaffected price and that the acquisition is not an inversion; however, the firm thinks SNN is not looking to sell, and a combination would not gain easy U.S. or EU anti-trust approval.

U.S. Treasury Secretary Jack Lew says that the Obama Administration is prepared to institute rules to stop tax inversion deals. If so, it will do so without a sliver of Republican support. Barclays analyst Michael Leuchten says, "Washington is playing for time. It makes them look good and it allows Congress to maybe get its act together and maybe do something on the legislative side."

Mr. Lew's comments have spooked the market a bit. European companies already involved in deals or rumored to be targets are all under pressure due to the perception that some of the deals already announced may be at risk.

The U.S. firm in the best position is Horizon Pharma (NASDAQ:HZNP). It completed its tax inversion transaction with Ireland-based Vidara Therapeutics last week.

Bloomberg reports that, according to analysts, there are three ex-U.S. medical firms that should be high on the target acquisition list for tax inversion deals. Ireland-based Perrigo (NYSE:PRGO), Switzerland-based Actelion and U.K.-based Smith & Nephew Plc (NYSE:SNN) (OTCQB:SNNUF) are all attractive targets. Observers believe there will be more acquisitions consummated before Congress puts limits on the maneuvers.

Stryker (NYSE:SYK) has been mentioned as a potential suitor for Smith& Nephew. Pfizer (NYSE:PFE) may make another run at AstraZeneca (NYSE:AZN) after the end of the cool-off period.

Bloomberg reports Medtronic (MDT+3.8%) is mulling a buyout offer for knee/hip implant maker Smith & Nephew (SNN+8.6%). SNN and i-banks are said to be "aware of Medtronic's interest.".

The news service cautions Medtronic's prep work is at an early stage, and that "no offer is imminent." Nonetheless, Medtronic is viewed as "a more serious bidder" for SNN than Stryker (SYK-0.1%), previously rumored to be weighing an offer.

Sources state a deal would likely result in Medtronic using SNN's corporate shell to change its legal residence to the U.K., and thereby take advantage of lower tax rates. Medtronic, which has a large offshore cash balance, has previously said it's open to a tax-inversion deal.

Shares of both companies have spiked higher following the report. SNN's market cap is currently at $17B.

Market chatter is building that Styker (SYK+1.8%) is exploring an offer for Smith & Nephew (SNN+2.7%), although the company denies it intends to submit a takeover bid as reported by the Financial Times.

Smith & Nephew (SNN) agrees to acquire Healthpoint Biotherapeutics for $782M, allowing the British medical products manufacturer to expand into the wound therapy sector. SNN expects the acquisition to exceed its cost of capital in the third full year following acquisition, to be broadly EPSA neutral in 2013 and accretive thereafter.

|Nov. 28, 2012, 8:07 AM

Jan. 4, 2012, 2:48 AM

Smith & Nephew (SNN) will spin off its biologics business into a new joint venture that will be majority owned by healthcare investor Essex Woodlands. Smith & Nephew will receive ~$98M in exchange, which will be used to pay down debt, and a $160M five-year note from the new JV.